Nominal Anchors in the CIS
IMF Working Papers, September 1, 2003
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Bibliographic details
- Authors: Peter M Keller, Thomas J Richardson
- Published: September 1, 2003
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451859058.001
Summary
- Monetary policy has become increasingly important in the countries of the Commonwealth of Independent States (CIS) as fiscal adjustment and structural reforms have taken root.
- Inflation has been brought down to relatively low levels in almost all of these countries, raising the question of what should be the appropriate nominal anchor at this stage.
- Formally, almost all CIS countries have floating exchange rate regimes, yet in practice they manage their exchange rates very heavily, perhaps because of high levels of dollarization (i.e., they suffer from "fear of floating").
- This paper explores the issues underlying the choice of a nominal anchor in CIS countries and seeks to assess whether the present mixed regime will prove durable.
Key findings and analysis
- Transition from fiscal-led to monetary-focused stabilization: fiscal adjustment and structural reforms have increased the role and importance of monetary policy in CIS countries.
- Low inflation environment: inflation has been reduced to relatively low levels in almost all CIS countries, prompting reassessment of the appropriate nominal anchor.
- De jure versus de facto regimes: although almost all CIS countries formally maintain floating exchange rate regimes, exchange rate management in practice is heavy.
- Dollarization and "fear of floating": high levels of dollarization are identified as a likely factor contributing to heavy exchange rate management despite formal floats.
- Durability of mixed regimes: the paper assesses whether the current mixed regime (formal float with heavy management) is likely to be durable given institutional and market conditions in the CIS.
Policy implications and considerations
- Choice of nominal anchor should account for:
- Low inflation outcomes achieved.
- High levels of dollarization and associated balance-sheet effects.
- Underdeveloped exchange markets in the CIS and prevalence of exchange market intervention.
- Considerations for policymakers:
- Whether to move toward more explicit inflation targeting given low inflation and strengthened monetary policy frameworks.
- The trade-offs of maintaining managed floats to mitigate dollarization risks versus the gains from nominal anchors that enhance monetary policy credibility.
- Strengthening money demand analysis and domestic financial markets to support any shift in nominal anchoring strategy.
Subjects and keywords
- Subject: Currencies, Dollarization, Exchange rates, Foreign exchange, Inflation, Inflation targeting, Monetary policy, Money, Prices
- Keywords: balance of payments, Baltics, CIS context, CIS country, CIS currency, CIS economy, CIS policymaker, CIS policymakers state, CIS trade, Currencies, Dollarization, Eastern Europe, exchange market intervention, exchange rates, Inflation, Inflation targeting, managed float, Monetary policy, money demand, nominal anchors, policymakers state, underdeveloped exchange market, underdeveloped exchange markets in the CIS, WP
Peter M Keller, and Thomas J Richardson. "Nominal Anchors in the CIS", IMF Working Papers 2003, 179 (2003), accessed 9/17/2026, https://doi.org/10.5089/9781451859058.001
Content in this bundle
- Nominal anchors in the CIS - WP/03/179